Posts in Non-Competes

Delaware Supreme Court Upholds Forfeiture for Competition Provision in Partnership Agreement

Cantor Fitzgerald, L.P., v. Ainslie, No. 162, 2023 (Del. Jan. 29, 2024)
Here, a limited partnership agreement authorized the partnership to withhold distributions owed to a partner who withdraws from the partnership and engages in specified competitive activities. The partnership attempted to enforce the agreement and several former partners sued in Delaware. At the trial court level, the Court of Chancery scrutinized the provision using the standard for non-compete covenants and found the provision overbroad and unreasonable and thus invalid on policy grounds. On appeal, the Delaware Supreme Court reversed and remanded. The Supreme Court held that forfeiture for competition provisions in partnership agreements should not be reviewed for reasonableness. Rather, they should “enjoy … deference on equal footing with any other bargained-for-term in a limited partnership agreement.” The Supreme Court’s reasoning largely turned on the express policy of the Delaware limited partnership statute (DRULPA) to give maximum effect to the principle of freedom of contract and to the enforceability of partnership agreements.

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Chancery Holds California Statutory Bar to Choice-of-Forum Clauses in Employment Contracts Prevents Exercise of Personal Jurisdiction – Despite Parties’ Choice of Delaware Law and Agreement to Litigate in Delaware

Focus Fin. Partners, LLC v. Holsopple, C.A. No. 2020-0188-JTL (Del. Ch. Oct. 26, 2020).
Delaware law promotes freedom of contract, and Delaware courts enforce contractual choice-of-forum and choice-of-law provisions, including those in employment-related contracts. Recently, however, several Delaware cases have considered whether such provisions can be enforced against non-residents in the face of contrary substantive law or fundamental public policy in their home jurisdiction. In California, a statute (“Section 925”) makes choice-of-law and choice-of-forum provisions voidable by the employee if the provisions appears in an agreement signed as a condition of employment. Here, the Court addressed how to reconcile Section 925 with the parties’ agreement to resolve disputes in Delaware and to apply Delaware law. Specifically, when the defendant (a former employee who lives and works in San Francisco) was hired, he received incentive units pursuant to agreements that contained restrictive covenants and selected Delaware as the exclusive forum for disputes, and selected Delaware law as the applicable law. The plaintiff brought suit in Delaware to enforce the restrictive covenants, and the employee moved to dismiss for lack of personal jurisdiction. More ›

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Chancery Denies Preliminary Injunction Based Upon Overbroad Restrictive Covenants

FP UC Holdings, LLC v. Hamilton, C.A. No. 2019-1029-JRS (Del. Ch. Mar. 27, 2020).

A party seeking a preliminary injunction must demonstrate a likelihood of success at trial. In a breach of non-compete action, this burden may not be met when economically unjustified restrictive provisions are “too broad as they would essentially prevent Defendant from operating … anywhere in the United States.” More ›

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